Australia tops dynamism index

When you think about dynamic business growth environments, which economies spring to mind? China? The US? Perhaps Singapore? Maybe Brazil or Mexico?

Well, according to our Global Dynamism Index (GDI) 2013, Australia is the economy businesses should be looking at. It climbed to the top of the ranking of 60 of the largest economies in the world this year, up from seventh place in 2012.

But before we start trumpeting Australia as the ‘best place to do business’ in the world, let’s be clear what the index shows. The GDI measures changes to each economy over the course of last year which made them a better (or worse) place to do business. It is a relative rather than an absolute measure.Even in a long year of political campaigning and doomsday debate, Australia’s business growth environment improved more than any other in 2012. This places us above China (3), the US (11), Japan (15) and well above the UK (34).

The key drivers behind the rise are labour productivity (2.6%) and real GDP (3.6%) growth. These are not increases to compete with China by any stretch of the imagination but they are very strong by advanced economy standards. And when combined with sound business growth infrastructure – Australia ranks high for the dynamism of its business operating (6) and financing (11) environments – you are left with a very competitive economy.

This is a fact borne out of the latest investment statistics. Australia attracted US$57bn of FDI in 2012, the seventh highest level globally. Not bad for the world’s 12th largest economy. Moreover, stocks of FDI have increased by 12% per annum on average over the past decade, rising far faster than the US (5%), France (6%), Germany (7%) or the UK (8%).

Of course, much of this investment has been in the mining sector. However the demand for commodities might well have reached its peak, especially from China which is slowing. More than a quarter of Australia’s exports go to China so this is big news.

The key for Australia’s future growth is to move beyond the mindset of ‘digging up stuff and selling it to China‘ being meaningful engagement with the region. The burgeoning middle classes in Asia offer a huge potential market for advanced goods and services such as banking, education, healthcare and tourism, particularly those in Australia’s middle market segment. These are our companies that are set for growth, and who will be the next growth engine of our economy. China alone has 1.3 billion people. Even if you target just 5% of the population, you have a market larger than France or the UK. No growing business can afford to walk away from that!

And I think the point that the GDI result makes so well is that Australia also has a lot to offer businesses planning to expand into Asia. Not just 22 years of unbroken economic growth but strong institutions, skilled, productive people and a strong culture of investment in R&D.

In 1997, former Australian prime minister, John Howard, said “we do not have to choose between our history and our geography”. With Asia booming and Europe still suffocating from the sovereign debt crisis, perhaps these words are more true now than ever before.